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FAQ Foreign Exchange - FAQ's about Foreign Exchange.


Whether you've ever been abroad, dealt with an international business or been into a bank, you will have most certainly have come across the term Foreign Exchange. However it can sometimes cause confusion as to what this term actually defines, this guide will tell you all you'll need to know about Foreign Exchange.

What is it?

Put simply the term Foreign Exchange refers to the buying, selling and exchange of international currencies. The Foreign Exchange market is the term used to describe the location of this trading, sometimes referred to as FX, Forex or the currency market it s the platform used to exchange and trade international currencies. It operates around the clock to accommodate different time zones and trades from Monday to Friday every week of the year.

Foreign Exchange involves financial companies act as traders between a vast variety of buyers and sellers on a global scale, from vast corporate businesses to holidaymakers.Foreign Exchange determines the value of each countries currency and is a crucial factor of investment and international trade markets.Foreign exchange is something that most people will have dealings with at some point in their lives.Any and all transaction you make in a currency different tothe one used in your home country is Foreign Exchange - this comprises transactions completed for holidays, travel, emigration and international trade.

How does it work?

The process that allows modern day international trade to be possible is known as currency conversion, this simply means if a business in France wanted to import products or services from the UK, it has to pay in Pound Sterling even though its own income is in Euros, Foreign Exchange allows this transaction to be successful by acting as a middle man and changing the Euro into Pound Sterling before it reaches the intended payee, Foreign Exchange is responsible for converting currencies.

In a most cases of Foreign Exchange, one party buys an amount of a currency by paying an amount of another currency. There are a plethora of factors that can effect the value of a currencythis can include Government legislation, economic variables such as consumer confidence, natural disasters and more recently the European recession.

Foreign Exchange is a huge industry and is continuing to grow with the daily turnover of over $4 trillion. The UK handles around 40% of all transactions making the country the most important foreign exchange base globally.

What exactly is a foreign exchange expert?

Foreign Exchange expertor currency brokers are able to assist with diverse foreign currency requirements. Their role is to assess your circumstances and requirements, then locate the best possible deal for your personal situations and transfer stipulations.

It is the role of a currency brokers to carefully watch the currency markets and connect currency trends with world news in order to have a comprehensive knowledge of what's affecting market fluctuations. Although they are restricted in offering detailed suggestions to customers, this information enables them to answer questions thoroughly and provide expert assistance.

What are the advantages of using a foreign exchange company?

High street banks are often the first port of call when people look to exchange their money, although often the most obvious choice they are not always necessarily the best. A company specialising in Foreign Exchange will often beat mainstream alternatives for both value for money and trading rates. Brokers will commonly offer highly competitive exchange rates on all major currencies, often beating the rates of the high street banks by over 3% on Foreign Exchange products.

What are the pitfalls?

Foreign Exchange is a highly lucrative industry, however there are pitfalls you should be aware of especially if you plan to use Foreign Exchange for business or investment purposes.

For example several government central banks sometimes choose to intervene in the markets in order to preserve the value of their currency, unbeknown to the average investor; the currency value is artificially strengthened or weakened, making it difficult to make trades based on market fundamentals.

Around 75% of all trades involving Currency Exchange are made between dealers and corporate businesses likebanks; they make substantial sized trades and therefore work off wholesale prices. As private investor, you however, are forced to buy and sell at the retail price.

The difference is known as the spread, and shows itself in the form of commissions and fees paid to the investor's broker.

Unlike typical trading exchanges with a central location, the Foreign Exchange market is open for trading 24 hours a day. With fluctuations in the value of currencies being triggered from traders on a worldwide scale, it's a continuous challenge to remain profitable.

Several Foreign Exchange brokers build price suspensions into their operations that are enforced when major news events or large fluctuations in the market occur. This ensures investors are not able to trade during the most profitable periods.


Please Note: is not authorised to give advice under the Financial Services and Markets Act 2000.

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